Best Buy Shares Aiming for Channel Support on Weak Outlook


Best Buy Shares Aiming for Channel Support on Weak Earnings

Best Buy shares gapped down after the company released its quarterly earnings report, indicating potential downside until the longer-term channel support. Price is currently consolidating above the $30 level for now but a break lower could increase selling pressure all the way down to the channel bottom at $24.

The 100 SMA is below the 200 SMA so the path of least resistance is to the downside. In addition, the 200 SMA lines up with the top of the channel and this moving average is holding as dynamic resistance. Stochastic is on the move up, though, so there might still be some room for another test of the channel resistance at $32-33.

The company’s first quarter earnings were actually better than expected as sales at existing stores fell only 0.1% instead of showing the projected 1-2% drop. Best Buy reported a profit of $229 million, compared with $129 million, a year earlier. Revenue slid 1.3% to $8.44 billion.

Strong performance was actually buoyed by sales of wearable electronics like Fitbits and a 14% increase in appliance sales, which are being helped by the rebounding home market. Online domestic sales rose 24% to $832 million even with stiff competition from Amazon.

However, what caused the decline in Best Buy shares was the weak outlook for the current quarter, downgrading their previous estimates which came below analysts’ expectations. In particular, management noted that the recent earthquake in Japan is likely to hurt acquisition of high-margin digital cameras for the period.

The company also announced the departure of CFO Sharon McCollam who has been considered transformational in her role at the company. She will stay on board as an advisor but will be replaced by chief strategic growth officer Corie Barry.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.